The Saudi Central Bank (SAMA) published its monthly bulletin for September 2022. Banks loan book increased by 1.1% mom (+15.3% yoy) to SAR2.32trn, taking ytd growth to 12.4%. New mortgages accounted for 40% of new loans in September, which indicates a more broad base growth in the loan book. The liquidity in the banking system remains tight as indicated by the increase in the regulatory LDR to 81.9% in September 2022 vs 81.5% in August 2022. During Q3 22, the listed banking sector profit increased by 22.8% yoy (+9.3% qoq) to SAR16.5bn, on the back of strong loan growth and lower provisioning expense. Strong growth was witness across the sector with SAIB doubling its profitability on yoy basis. SABB and ARNB also reported strong growth. On qoq basis, strong growth was witnessed in the same names, while BJAZ was the only banks to show a decline in profitability on qoq basis.
From a macro perspective, total reserves increased by 2.4% mom (+0.6% yoy) to SAR1.76trn (US$468bn), while CPI stood at 3.1% yoy in September vs 3.0% in August 2022.
The Saudi banking sector’s assets increased by 0.1% mom (+13.1% yoy) to SAR3.56trn (US$951bn) in September 22. This takes 2022 ytd increase to 8.8%.
The loan book increased by 1.1% mom (+15.3% yoy) to SAR2.32trn. This takes the ytd growth to 12.4% vs 12.7% in the same period last year.
o In absolute terms, the new loan origination stood at SAR24.6bn in September, marginally lower than SAR35.1bn in August.
o New mortgage originations (by banks) decreased by 21.8% mom (-17.5% yoy) to SAR9.93bn in September 2022. However, the segment still accounted for c40% of new loans in September 2022 vs 36% in August 2022.
o Overall, the sector has originated new mortgages of cSAR97.1bn in 9M 22 (38% of total new loans) vs cSAR116bn in 9M 21 (51% of new loans), down 16.2% yoy. In addition to higher interest rates, we believe higher real-estate valuations and cost of construction are also impacting the demand for new mortgages, in our view.
o The Fed raised the interest rates five times in 2022 to a range of 3.0–3.25%, after it was almost zero at the beginning of the year. Furthermore, there is an anticipation that the Fed will raise the rate further by another 75-100bps by December 2022. Given the currency peg, SAMA is expected to follow.
Overall, the sector loan increased by 3.3% qoq (+15.3% yoy) to SAR2.32trn in Q3 22.
o Amongst the individual banks, qoq growth was led by Rajhi, which increased its loan book by 7.3% qoq (+32.4% yoy), followed by Alinma (+6.7% qoq). SABB and SIAB has also delivered a decent loan growth in Q3 22 of 3.9% qoq.
o The sector originated new loans of SAR73.7bn in Q3 22 vs SAR86.1bn in Q2 22 and SAR56.3bn in Q3 21. Rajhi originated 51% of the total loans in Q3 22 (or SAR38bn), while Alinma and SABB originated 12% and 9% of new loans in Q3 22, respectively.
In 9M 22, the sector loan book increased by 12.4% ytd, of which Rajhi accounts for 41% of new loans origination while SNB accounts for 16%.
Deposits increased by 1.1% mom (+10.1% yoy) to SAR2.26trn. Demand deposits increased marginally by 0.1% mom (+5.4% yoy) to SAR1.40trn, while T&S deposits increased by 3.4% mom (+18.1% yoy) to SAR543bn. T&S deposits now accounts for 24% of total deposits base vs 22% in September 2022.
Subsequently, regulatory loan to deposit ratio (LDR) increased to 81.9% in September 2022 vs 81.5% in August 2022. Excess deposits (total deposits minus loans) remained negative at SAR49bn in September 2022, similar to August 2022
o We believe tight liquidity situation will continue to impact the sector cost of funds going forward, particularly for those banks that have higher LDRs.
The sector reported a net profit of SAR18.2bn in Q3 22, up 20.7% yoy (+9.0 qoq).
For the listed sector, net profit stood at SAR16.5bn in Q3 22 vs SAR13.4bn in Q3 21 (+22.8% yoy) and SAR15.1bn in Q2 22 (+9.3% qoq). Adjusted for Tier 1 sukuk cost, sector net profit stood at SAR16.1bn in Q3 22 vs SAR13.2bn in Q3 21 and SAR14.8bn in Q2 22 (+21.8% qoq, +8.9% qoq).
Strong growth was witnessed across the sector on the back of strong loan growth and lower provisioning. Sector’s NIMs has largely remained unchanged as the impact of higher yields on the earnings assets was more than offset by higher cost of funding. Furthermore, increase competition has also impacted credit spreads.
On yoy basis, SAIB doubled its profitability, while SABB and ARNB also reported strong growth. On qoq basis, strong growth was witnessed in the same names, while BJAZ was the only banks to show a decline in profitability on qoq basis.
Banks and other financing companies signed 13,183 new residential mortgage contracts for individuals in September 2022 vs 16,573 a month earlier (-20.5% mom, -16.9% yoy).
The total disbursed amount stood at SAR10.2bn in September 2022 vs SAR13.0bn in August 2022, down 21.2% mom (-17.4% yoy).
Average contract value remained flat mom at SAR0.80mn.
Other Macro data
Total reserves increased by 2.4% mom (+0.6% yoy) to SAR1.76trn (US$468bn).
Broader money supply (M3) increased by 9.0% yoy (+1.03% mom) to SAR2.47trn.
The yoy growth was due to a combination of growth in T&S deposits and Other Quasi Money deposits.
M1 increased by 4.37% yoy (+0.09% mom) to SAR1.60trn, with demand deposits increasing by 5.4% yoy (+0.07% mom) while currency in circulation (CIC) was down by 2.4% yoy (+0.17% mom).
T&S deposits increased by 18.1% yoy (+3.4% mom).
CPI increased by 3.1% yoy (+0.3% mom) in September 2022 and is higher than 3.0% recorded in August 2022.
The increase is primarily due to higher food and transportation prices, which increased by 4.3% yoy and 3.8% yoy, respectively.
In 9M 22, average CPI stood at 2.3% yoy vs 3.8% in the same period last year, primarily driven by higher food (+3.6% yoy), transportation (4.0% yoy) and education prices (+6.1% yoy)
PoS transactions stood at SAR47.4bn in September 2022, up 18.6% yoy (-4.7% mom).
ATM cash withdrawals (Banks and Mada) decreased by 0.7% yoy (-1.71% mom) to SAR45.3bn.